Global fuel market is waiting for some clarity from the Vienna meeting next week, expert says

World oil indexes have had irregular changes with no firm trend during the week. Fuel market is looking into the global supply and demand picture to guess where the prices of oil and fuel are heading. Some are focusing on the loss of supply from Venezuela and a potential reduction of Iranian exports to justify the view that prices will be heading higher. Others are figuring that OPEC will reverse some of the production cuts in place and bring back as much as 1 million bpd to the market to offset any supply disruptions.

MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) added some points in the period of Jun.07 – June 14, but it is still too early to talk about any firm trend:

380 HSFO - up from 427.79 to 429,86 USD/MT (+2.07) 180 HSFO - up from 469.00 to 471,79 USD/MT (+2.79) MGO - up from 669.57 to 678.71 USD/MT (+9.14)

The markets shrugged at the historic meeting between President Trump and North Korean dicta-tor Kim Jong Un. Both sides hailed the summit as a breakthrough, with a pledge towards denuclearization, but as expected, there was a lack of even the most basic details on how they might get there. According to a report by the Korean Central News Agency (KCNA), Trump expressed his intention to halt U.S.-South Korea joint military exercises, offer security guarantees to the North and lift sanctions against it as relations improve. However, it seems that the summit had yielded only symbolic results and nothing essential.

OPEC’s efforts to erase the oil glut and lift oil prices paid off as the cartel reaped higher revenues from crude oil exports in 2017. But the rewards from the cuts were not evenly split among the cartel’s members. The biggest percentage gain in the value of petroleum exports was recorded in Libya (up 61 percent on the year to US$15 billion). The second was Qatar (up 55 percent to US$35.5 billion) and The United Arab Emirates (UAE) was the third. The higher oil prices also helped most of the OPEC members (in particular Saudi Arabia, Libya, Venezuela, and Qatar) to improve their current account balances last year.

Meantime, OPEC emphasized the deep uncertainty over the strength of demand for its oil just a week before contentious talks on whether to raise production. There’s a wide forecast range for how much crude the OPEC needs to pump in the second half of the year. With a range of 1.7 million barrels a day between the upper and lower estimates, demand could either be significantly higher, or slightly below, than OPEC’s current output.

Besides, opposition to an increase in the OPEC/non-OPEC production limits continues to grow, with Iraq coming out against such a move. OPEC’s second largest producer said that the production cuts have not yet achieved the intended objective of balancing the oil market. The statement of opposition comes after Iran and Venezuela also called upon the group to keep the limits in place.

The U.S. reportedly asked Saudi Arabia for higher oil production to offset Iranian outages, a request that was made before the U.S. withdrawal from the Iran nuclear deal. The apparent sudden shift in the Saudi position shortly after the conversation has annoyed a lot of OPEC members. The comments raise the possibility of a contentious meeting in Vienna.

Venezuela has begun testing seaborne oil transfers to ease a severe backlog of crude deliveries from its main terminals, as delays and production declines could temporarily halt state-run PDVSA’s supply contracts if they are not cleared soon. The delivery method entails specialized equipment and training and higher costs for ship owners and customers. Tankers waiting to load more than 24 million barrels of crude. Venezuela’s crude exports fell 6 percent in May to 1.168 million bpd while Venezuela’s crude exports in the first five months of 2018 were 27 percent lower than in the same period of 2017.

Meantime, Russia’s oil production (the world’s biggest) had risen to 11.1 million bpd in early June, up from slightly below 11 million bpd in most of May and well above its target production of under 11 million bpd as part of the deal.

The European Union has vowed to maintain the Iran nuclear deal despite the U.S. decision to exit, and Brussels has pushed back against Washington’s attempts to penalize European companies from doing business with Iran. However, some European companies have already begun cutting business ties with the Islamic Republic. Iran in turn said that it would ramp up work on its nuclear program if the EU is unable to offer enough security to ensure European companies can continue to operate in Iran.

The estimates for how much Iranian oil U.S. sanctions will impact ranges. But the mass flight of top American and European companies, and the early signs of a significant decline in purchases from refiners around the world, plus the difficulty in finding shipping and insurance, all suggests that the supply disruptions could potentially be at the higher end.

The number of new rigs drilling for oil in the United States rose by one last week to 862, its highest since March 2015. That suggests that U.S. crude output, already at a record high of 10.9 million barrels per day will climb further, which will continue to put downward pressure on fuel prices.

China’s May crude oil imports eased away from a record high hit the month before. May shipments were 39.05 million tonnes, or 9.2 million barrels per day (bpd). That compared with 9.6 million bpd in April.

We expect that bunker prices will likely change irregular over the next week until the fuel market gets some clarity from the Vienna meeting.

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